A presentation on FINANCIAL MANAGEMENT.

1. INTRODUCTION
Finance is the study of funds and management. Its
general areas are business finance, personal
finance, and public finance. It also deals with the
concepts of time, money, risk, and the interrelation
between the given factors.
 It is basically focused on how the money is spent
and budgeted. It is one of the most important aspects
in handling business.
Finance addresses the methods where business
entities used there financial resources on a certain
period of time. It is the application of a set of
techniques used by organizations in managing their
financial affairs.

2. FINANCIAL MANAGEMENT?
 Financial management is concerned with the acquisition, financing
and management of assets with some overall goal in mind.
 The decision function of financial management can be broken into
three major areas: the investment financing and asset management
decisions.

3. Approaches to the Finance
 According to the first approach, the term finance was interpreted to mean
the procurement of funds by corporate enterprises to meet their financing
needs.
Failures
(a)It is too narrow and restrictive in nature. Procurement of the funds is only
one of the functions of finance and other functions are ignored by this
approach.
(b) It considers the financial problems only of corporate enterprises. In that
sense, it ignore the financial problem of non corporate entities like
proprietary concerns , partnership firms etc.
(c) It consider only the basic and non-recurring problems relating to the
business. Day-to-day financial problems of a normal company do not receive
any attention .

4. Approaches to the Finance
 The second approach holds that finance is concern with cash . As all
.
the transactions are ultimately expressed in terms of cash , the term
finance will be concerned with every activity of the enterprise. Thus
, according to this approach , the finance functions is concerned with
the all the functional areas of the business.
 The third approach , which is a more balanced one and hence the
acceptable one to the modern scholars , interprets the term
finance as being concerned with procurement of funds and wide
application of funds . This approach is supposed to be more
acceptable as it gives equal weightage to both procurement of
funds as well as utilization of the funds . This approach is called
the managerial approach to the term finance.

5. Role of finance in India
and developed countries
 Understanding mechanisms that promote
sustainable long-term economic growth has long
been a central mission for economists.
 Despite many cross-country studies, whether
developing law, legal institutions, banks and
markets is a necessary condition for economic
growth remains an open question.
 . Compared to large and diverse countries
(e.g., India), small homogeneous countries
(e.g., Singapore) may have more effective legal
and financial institutions because they can be
tailored to the needs of the domestic economy at
relatively low costs.

6. Role of finance in India and other
countries:
 Backed by legal institutions (law and
courts), banks and markets are more accessible to
large and listed firms than to small and private
firms in most countries.
 This approach thus obscures possibly
considerable variations among corporate sectors
and firms, and ignores other financing and
alternative options to the legal system.

7. Role of finance in India and other
countries:
 In contrast to most existing research, our paper
uses a single-country setting, India, one of the
largest and fastest growing economies in the
world, and provides a comprehensive
examination of the complex linkages among legal
and business environments, financing channels
and growth patterns of different legal system.

8. IMPACT OF FINANCE
OVER ECONOMY
 There has been a steep fall
 in GDP growth rate as
 compared to previous
 financial quarters.

11. 6

12. Role of Finance
 Start a business
 Depending on the type of business, it will need to finance the
purchase of assets, materials and employing people. There will also
be a need for money to cover the running costs. It may be some
time before the business generates enough cash from sales to pay
for these costs. Link to cash flow forecasting.
 Finance expansions to production capacity
 As a business grows, it needs higher capacity and new
technology to cut unit costs and keep up with competitors. New
technology can be relatively expensive to the business and is
seen as a long term investment, because the costs will outweigh
the money saved or generated for a considerable period of time.
And remember new technology is not just dealing with
computer systems, but also new machinery and tools to perform
processes quicker, more efficiently and with greater quality.

13. Role of finance
 To develop and market new products
 In fast moving markets, where competitors are constantly
updating their products, a business needs to spend money on
developing and marketing new products e.g. to do marketing
research and test new products in “pilot” markets. These costs
are not normally covered by sales of the products for some time
(if at all), so money needs to be raised to pay for the research.
 To enter new markets
 When a business seeks to expand it may look to sell their
products into new markets. These can be new geographical areas
to sell to (e.g. export markets) or new types of customers. This
costs money in terms of research and marketing e.g. advertising
campaigns and setting up retail outlets.

14. .
Role of Finance
 Take-over or acquisition
 When a business buys another business, it will need
to find money to pay for the acquisition (acquisitions
involve significant investment). This money will be
used to pay owners of the business which is being
bought.
 To pay for the day to day running of business
 A business has many calls on its cash on a day to day
basis, from paying a supplier for raw materials, paying
the wages through to buying a new printer cartridge

15. Role of Stock exchange
 Stock Exchange:
 A stock exchange is a form of exchange which provides services
for stock brokers and traders to trade stocks, bonds, and
other securities. Stock exchanges also provide facilities for issue
and redemption of securities and other financial
instruments, and capital events including the payment of
income and dividends. Securities traded on a stock exchange
include shares issued by companies, unit
trusts, derivatives, pooled investment products and bonds.
 To be able to trade a security on a certain stock exchange, it must
be listed there. Usually, there is a central location at least for
record keeping, but trade is increasingly less linked to such a
physical place, as modern markets are electronic
networks, which gives them advantages of increased speed and
reduced cost of transactions. Trade on an exchange is by
members only.

16. Role of Stock exchange
 Raising capital for businesses
 The Stock Exchange provide companies with the
facility to raise capital for expansion through
selling shares to the investing public.
 Common forms of capital raising
 Besides the borrowing capacity provided to an
individual or firm by the banking system, in the form
of credit or a loan, there are four common forms of
capital raising used by companies and entrepreneurs.
Most of these available options, might be
achieved, directly or indirectly, involving a stock
exchange.

17. Role of Stock exchange
 Going public
 Capital intensive companies, particularly high
tech companies, always need to raise high volumes of
capital in their early stages.
 After the 1990s and early-2000s hi-tech listed companies'
boom and bust in the world's major stock exchanges, it has
been much more demanding for the high-tech
entrepreneur to take his/her company public, unless either
the company already has products in the market and is
generating sales and earnings, or the company has
completed advanced promising clinical trials, earned
potentially profitable patents or conducted market
research which demonstrated very positive outcome.

18. Role of Stock exchange
 Mobilizing savings for investment
 When people draw their savings and invest in shares (through
a IPO or the issuance of new company shares of an already listed
company), it usually leads torational allocation of resources
because funds, which could have been consumed, or kept in
idle deposits with banks, are mobilized and redirected to help
companies' management boards finance their organizations.
 Facilitating company growth
 Companies view acquisitions as an opportunity to
expand product lines, increase distribution channels, hedge
against volatility, increase its market share, or acquire other
necessary business assets. A takeover bid or a merger agreement
through the stock market is one of the simplest and most
common ways for a company to grow by acquisition or fusion.

19. Role of stock exchange
 Profit sharing
 Both casual and professional stock investors, as large
as institutional investors or as small as an ordinary middle
class family, through dividends and stock priceincreases that
may result in capital gains, share in the wealth of profitable
businesses. Unprofitable and troubled businesses may result
in capital losses for shareholders.
 Creating investment opportunities for small investors
 As opposed to other businesses that require huge capital
outlay, investing in shares is open to both the large and
small stock investors because a person buys the number of
shares they can afford. Therefore the Stock Exchange provides
the opportunity for small investors to own shares of the same
companies as large investors.

20. Major stock exchanges
Market
Stock Capitalizatio Trade Value
Rank Economy Exchange Location n (USD
(USD Billion Billions)
s)
United States NYSE
1 Euronext (US & New York City 14,242 20,161
Europe Europe)
United States NASDAQ
2 OMX (US & New York City 4,687 13,552
Europe North Europe)
3 Japan Tokyo Stock Tokyo 3,325 3,972
Exchange
4 United London Stock London 3,266 2,837
Kingdom Exchange
5 China Shanghai Stock Shanghai 2,357 3,658
Exchange
Hong Kong
6 Hong Kong Stock Hong Kong 2,258 1,447
Exchange

21. 7 Canada Toronto Stock Toronto 1,912 1,542
Exchange
8 Brazil BM&F São Paulo 1,229 931
Bovespa
Australian
9 Australia Securities Sydney 1,198 1,197
Exchange
10 Germany Deutsche Frankfurt 1,185 1,758
Börse
11 Switzerland SIX Swiss Zurich 1,090 887
Exchange
Shenzhen
12 China Stock Shenzhen 1,055 2,838
Exchange

22. 13 Spain BME Spanish Madrid 1,031 1,226
Exchanges
14 India Bombay Stock Mumbai 1,007 148
Exchange
15 South Korea Korea
Exchange Seoul 996 2,029
National Stock
16 India Exchange of Mumbai 985 589
India
17 Russia MICEX-RTS Moscow 800 514
18 South Africa JSE Limited Johannesburg 789 372

23. Financial Management
and its Future Prospects
 It was early 19th century when Financial Management came out as an
independent area of study. At that time financial management was
used in, understanding and managing mergers, preparing feasibilities
of new companies or products, and raising finances for new ventures.
 Value maximization has been the focus of financial management, since
the beginning of 21st century. Both trends of globalization and fast
progress of information technology have played their roles in adding
on to the role of financial management.
 l financial management continue to play for companies in future? This
is certainly not one of the difficult questions to answer, as the goal of
financial management will continue to facilitate companies in setting
their visions and preparing for future. Such an objective suggests that
finance is no longer just an operational activity, but it’s now more
strategic in nature.

24. Responsibilities of
Finance manager?
 A financial manger is a person who takes care of all the important
financial functions of an organization. The person in charge should
maintain a far sightedness in order to ensure that the funds are utilized
in the most efficient manner. His actions directly affect the
Profitability, growth and goodwill of the firm.
 Following are the main functions of a Financial Manager:
 Raising of Funds
 A firm can raise funds by the way of equity and debt. It is the
responsibility of a financial manager to decide the ratio between debt
and equity.
 It is important to maintain a good balance between equity and debt.

25. Responsibilities of finance
manager
 Allocation of Funds
 Once the funds are raised through different channels the
next important function is to allocate the funds. The
funds should be allocated in such a manner that they are
optimally used. In order to allocate funds in the best
possible manner the following point must be considered
 The size of the firm and its growth capability
 Status of assets whether they are long term or short
term
 Mode by which the funds are raised.

26. Responsibilities of finance
manager
 Profit Planning
 Profit earning is one of the prime functions of any
business organization. Profit earning is important for
survival and sustenance of any organization.
 Profit planning refers to proper usage of the profit
generated by the firm.
 Profit arises due to many factors such as
pricing, industry competition, state of the
economy, mechanism of demand and supply, cost and
output

27. Scope of Finance
 Estimating the Requirement of Funds
 The finance department must estimate the capital
requirements of the firm accurately for long term and short term
needs. In estimating the capital requirements of the
business, the finance department must take help of the budgets
of various activities of the business e.g. sales budget, production
budget, expenses budget etc. prepared by the concerned dept.
 In the initial stage, the estimate is done by promoters but in a
growing concern, it is done by the finance dept.
 In estimating the requirement of funds, nature and size of the
business, modernization and expansion plan should be given
due consideration.

28. Scope of Finance
 Investment of Funds
 In taking decisions for the investment of long term funds, a
careful assessment of various alternatives should be made
through capital budgeting, opportunity cost analysis and many
other techniques used to evaluate the investment proposals.
 Determining the Capital Structure
 By capital structure refers to the kind and proportion of
different securities used for raising the required funds. Once the
total requirement of funds is determined, a decision regarding
the type of securities to be issued and the relative proportion
between them is to be taken.
 In determining these ratios, cost of raising finance from
different sources, period for which funds are required and several
other factors should be considered.

29. Scope of Finance
 Choice of Sources of Finance
 A company can raise funds from different sources e.g.
shareholders, debenture holders, banks, financial
institutions, public deposits etc. Before raising the funds, it
has to decide the source from which funds are to be raised.
 The choice of the source of finance should be made very
carefully by taking a number of factors into account such as
cost of raising funds, conditions attached, charge on assets,
burden of fixed charges, dilution of ownership and control
etc.

30. Scope of Finance
 Management of Cash
 It is the prime responsibility of the finance manager to see that
an adequate supply of cash is available at proper time for the
smooth running of the business.
 Availability of cash is necessary to maintain liquidity and credit-
worthiness of the business. Excess cash must be avoided as it
costs money.
 Financial Controls
 The financial manager is under an obligation to check the
financial performance of the funds invested in the business.
There are a number of techniques to evaluate the performance
viz. Return on Investment (ROI), budgetary control, cost
control, internal audit, ratio analysis and break-even point
analysis. The financial manager must lay emphasis on financial
planning as well.

31. Sources of Finance
 External sources of finance
A)Short Term sources-
Bank overdraft: Bank overdraft is a facility given by
banks to its business customers, people having current
accounts. Through this facility the customers can
overdraw their accounts to a greater value than the
balance in the account.

32. Advantage Disadvantage
 No need for collaterals  Interest rates are
or security. usually variable and
 More flexible and the higher than bank
overdraft amount can loans
be adjusted every  Cash flow problems
month according to can arise if the bank
needs. asks for the overdraft
to be repaid at a short
notice.

33. Source of Finance
 Trade Credit: Usually in business dealing supplier give a
grace period to their customers to pay for the purchases.
This can range from 1 week to 90 days depending upon the
type of business and industry.
 Advantage
No interest has to be paid.
 Disadvantage
The business may not get cash discounts.
 By delaying the payment of bills for goods or services
received, a business is in effect obtaining finance which can
be used for more important expenditures.

34. Sources of Finance
 Factoring of debts: It involves the business selling its bills
receivable to a debt factoring company at a discounted price. In
this way the business get access to instant cash.
 Medium Term sources:-
 Hire purchase: It involves purchasing an asset paying for it over
a period of time. Usually a percentage of the price is paid as
down payment and the rest is paid in instalments for the period
of time agreed upon. The business has to pay an interest on these
instalments.
 Leasing: Leasing involves using an asset, but the ownership
does not pass to the user. Business can lease a building or
machinery and a periodic payment is made as rent, till the time
the business uses the assets. The business does not need to
purchase the asset.

35. Sources of Finance
 Long term sources:-
Long term Bank loan: borrowing from bank for a limited
period of time. The business has to pay an interest on the
borrowing. This interest may be fixed or variable.
Businesses taking loan will often have to provide security or
collateral for the loan.
Issue of share: It is a permanent source of finance but
only available to limited companies. Public limited
companies can sell further shares up to the limit of their
authorized share capital. Private limited companies can sell
further shares to existing shareholders.

36. Sources of finance
 Debentures
A debenture is defined as a certificate of acceptance of
loans which is given under the company's stamp and
carries an undertaking that the debenture holder will get a
fixed return (fixed on the basis of interest rates) and the
principal amount whenever the debenture matures. It is
issued for a long periods of time. Debentures are generally
freely transferrable by the debenture holder. Debenture
holders have no voting rights and the interest given to
them is a charge against profit.

37. Procedure of Finance
A statement of assets, liabilities and capital on a given
date
Assets:
Fixed: land, building, equipments etc
Current: Cash in hand or in bank, stocks, debtors
Liabilities
Long term: Loans > 1 yr
Current/ short term: overdraft, taxes
Capital= Assets -Liabilities

38. FINANCE FUNCTION IN RELATION
WITH OTHER FUNCTIONS
 Other than finance,every business generally operates in
three main functional areas viz. Production,Marketing and
Personnel.
 All these functions are closely related to finance as all of
them need funds;which is the area covered by finance
function.
 To market the finished goods properly in the market,the
business has to have a proper investment in the finished
goods to guarantee regular flow of goods in the market.
 It may be required to have good distribution systems which
may call for investment in terms of fixed assets or labour
force.
 To conclude,it may be stated that all the functions or
activities of the business are ultimately related to finance.

39. Balance sheet
A statement of assets, liabilities and capital on a
given date
 Assets:
Fixed: land, building, equipments etc
Current: Cash in hand or in bank, stocks, debtors
 Liabilities
Long term: Loans > 1 yr
Current/ short term: overdraft, taxes
Capital= Assets -Liabilities

40. Risk and Return
 Return:Income received on an investment plus any
change in market price,usually expressed as a percent
of the beginning market price of the investment.
 Risk: The variability of the returns from those that are
expected.

41. Prevention and cure for financial
crises.
 Export-oriented development policy
 Countries with an export-oriented development strategy
have experienced more rapid export and economic growth
than those with import-substitution policies, and have
avoided debt problems better.
 Export-led growth requires import liberalization and
increasing openness of the economy, which expose a country
to larger markets but severe international competition. The
competition enhances economic efficiency, technology and
productivity, which, in turn, results in higher economic
growth and a larger capacity to absorb external debt.

42. Economic reform and
opening
 Many Asian economies still suffer from excessive government
intervention, over-regulations and large protected segments in
the economy, which together yield low productivity and low
product quality.

43. Structure of finance:
The way in which a company's assets
are finance, such as short-
term borrowings, long-term debt,
and owners equity. Financial structure
differs from capital structure in that
capital structure accounts for long-
term debt and equity only.

44. This financial structure is a mixture that directly affects the
risk and value of the business. The main concern for the financial
manager of the company is deciding how much money should be
borrowed and the best mixture of debt and equity to obtain. The
financial manager also has to find the least expensive sources of
funds for the company to use.
Financial structure is divided into the amount of the
company's cash flow that goes to creditors and the amount that goes
to shareholders. Each business will have a different mixture
depending on its needs and expenses. Therefore, each company will
have its own particular debt-equity ratio. For example, a company
could issue bonds and use the proceeds to buy stock or it could issue
stock and use the proceeds to pay its debt.

45.  FROM:
ABHIJITH NAIR(LEADER)
PANKHIL RABADIYA
AKANKSHA PANCHOLI
MIRAJ PATEL
DIKSHIT KAVATHIYA
HARDIK KHUNT
JAY SONI
HARDIK PRAJAPATI